By Margaret Cronin Fisk
Published: June 10, 2014, Bloomberg News

Caterpillar Inc. (CAT) paid $46 million to settle a lawsuit over claims that a defective engine caused a fire that destroyed a ship being built in Mobile, Alabama, by a company that later went bankrupt.

Caterpillar agreed to pay $12 million to Mobile-based Bender Shipbuilding & Repair Co., which entered bankruptcy in 2009; $22 million to Seacor Marine LLC, owner of the offshore supply ship; and the rest to six insurance companies, according to court records.

U.S Bankruptcy Judge Margaret Mahoney in Mobile last week approved the Bender portion of the settlement. The agreement was reached in April on the eve of a trial, said Bender's attorney Lucy Tufts.

Bender claimed a Caterpillar engine installed on the ship threw a rod during testing in May 2008 and started a fire.

"The fire burned for more than 24 hours before it was brought under control," Tufts said in an interview. Caterpillar left out an oil plug in the engine's crankshaft during manufacture, which led to the engine's failure, Tufts said.

Rachel Potts, a spokeswoman for Peoria, Illinois-based Caterpillar, didn't immediately respond to an e-mail seeking comment on the settlement.

The lawsuit is Bender Shipbuilding and Repair v. Caterpillar, 02-cv-2010-901073, Circuit Court, Mobile County, Alabama. The bankruptcy case is In Re Bender Shipbuilding & Repair Co., 09-bk-12616, U.S. Bankruptcy Court, Southern District of Alabama (Mobile).